Quanta Services (NYSE: PWR) finds itself in a sweet spot, as it’s positioned to benefit from the infrastructure build-out needed to power artificial intelligence (AI) and modernize the electric grid. The company’s order book has never been larger, reaching a record $48.5 billion at the end of the first quarter.
The stock has more than doubled over the past year, driven by the growing pipeline of secured work. For long-term investors, the business quality is undeniable, but the valuation appears to have gotten ahead of the fundamentals.
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A higher portion of complex work is driving margin expansion
Quanta provides engineering, construction, and maintenance services for the utility, energy, and technology industries. Its services are essential to building substations that power data centers and upgrading transmission lines that keep the lights on.
The growth of Quanta’s total backlog, which was up 37.5% year over year, according to the most recent report, is impressive. In addition, the 12-month backlog of $28 billion was up 45% and is now equivalent to the company’s full-year 2025 revenue.
More importantly, the company is winning higher-quality work. The business is shifting toward larger, fixed-price contracts, which accounted for around 63% of total revenue in the first quarter. These complex projects, like data center build-outs and large-scale transmission lines, carry higher margin potential than routine maintenance.
This was on display during the first quarter in its underground and infrastructure segment. Despite organic revenue declining by 17%, the segment’s operating margin improved to 7.5% from 6% a year ago. The improvement was driven by contributions from acquired businesses specializing in higher-margin mechanical and electrical work inside data centers.
This shift toward more profitable projects, combined with operating leverage, is boosting the bottom line. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) grew by 36% in the quarter as margins expanded by 60 basis points to 8.7%.
A compelling story at a rich price
Last year, free-cash-flow margin dipped to 5.7% from 6.2% as growth consumed more working capital. While cash flow remains healthy, growth is coming at a cost.
